Facebook’s ‘In a Penalty Box’: Analyst

Facebook shares hit a fresh all-time low in trading on Thursday, driven lower by investors who have in the words of one analyst put the stock “in a penalty box.”

Before they went public, social media companies such as Facebook and Zynga saw their original valuations based on the number of users who actively used their platforms, said Colin Sebastian, a senior analyst at Robert W. Baird.

“Now that they’re public companies, the attention shifts to monetization of those users, and both companies are in an awkward phase in their life cycle in terms of increasing monetization,” Sebastian told CNBC’s“Squawk on the Street.”

Valuations of social media companies require some foresight and forecasting, while much of Facebook’s monetization depends on its ability to generate a higher return on investment for advertisers and to boost user engagement.

“That's somewhat speculative and I think in this environment, given the botched IPO (initial public offering) of Facebook, investors don’t have much tolerance to wait and see and so the stock’s in a penalty box,” he said.

Additional overhangs for the social-networking giant include the impending lockup expiration of its shares and the lack of guidance that the company included in its first quarterlyearnings report.

This uncertainty has resulted in an unenviable position for Facebook in the minds of investors — that of a “show-me story,” Sebastian said.

— Written by CNBC's Katie Little. Follow her on Twitter @katie_little.